How Does an Interest Rate Hike Affect You?
If you take out a mortgage, use a credit card or put money into a savings account, interest rates play a big role in your financial life. The Federal Reserve raises or lowers those rates to achieve its dual goals: to manage inflation and encourage full employment.
When the Fed raises the federal funds rate, it makes it more expensive for banks to send and receive money from one another. Those higher costs are then passed on to consumers, making loans and credit cards more expensive. During periods of economic growth, a higher interest rate can help slow inflation, reduce borrowing and stimulate consumer spending.
A recent study found that when the Fed raises rates, they also push up interest rates in other countries. That’s known as global transmission. It’s important to understand how this affects the world economy. In this episode, we speak with Gian-Maria Milesi-Ferretti, a senior fellow at the Hutchins Center on Fiscal and Monetary Policy and an expert on international finance and monetary policy.
What Does It Mean to Have a High Interest Rate?
When the Federal Reserve raises interest rates, it makes it more expensive to borrow money for things like homes and cars. It can also impact your credit score. It may also make it harder for you to pay off your debts, which could lead to other problems down the road. Rising interest rates can also impact your retirement savings and investments.
